What is insider trading and why should investors keep track of insider trading behavior? In simple words, insider trading involves the buying or selling of equity securities by individuals who hold access to material, non-public information. Insider trading can be both legal and illegal, but this distinction is not overly important for non-insiders tracking insider trading activity. Corporate insiders such as directors and executives do have a better understanding about their companies’ business operations and future prospects than any of us, so their transactions may serve as great tips for outsiders. It seems that there is just one reason insiders purchase shares in their own companies on the open market, which is that they believe those shares are severely undervalued. On the other hand, insiders can sell shares for any number of reasons, which is why investors pay much more attention to insider buying than selling. With that in mind, let’s proceed to the discussion of the noteworthy insider trading activity registered at five companies, of which three witnessed interesting insider buying.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Battered Oil Services Company Had Two Board Members Buy Shares This Week
To start with, Weatherford International Plc (NYSE:WFT)’s Director Robert A. Rayne purchased 100,000 shares on Monday at a price of $5.59 per share, boosting his overall holding to 657,645 shares. Francis S. Kalman, another member on Weatherford’s Board, snapped up 30,000 shares on the same day for $5.29 each. After the recent purchase, Mr. Kalman currently owns 70,056 shares.
The provider of equipment and services to the oil and natural gas E&P industry has seen its market value plummet by 31% in the past five trading sessions, as the company reported a wider-than-expected loss and weak guidance for the rest of 2016. The world’s fourth-largest oil services firm reduced its 2016 free-cash-flow guidance by $200 million to a range of $400 million-to-$500 million. Weatherford International Plc (NYSE:WFT) plans to generate free cash flow in the range of $600 million to $750 million each year by 2020, which would yield as much as $3 billion on aggregate. The free cash flow is set to be used to reduce the company’s heavy debt load. Weatherford shares are down 62% in the past 12 months. Sander Gerber’s Hudson Bay Capital Management cut its stake in Weatherford International Plc (NYSE:WFT) by 43% during the March quarter to 216,409 shares.
Let’s head to the next two pages of this article, where we will discuss several noteworthy insider transactions witnessed at four other companies.